Global equity markets continued to rally in the final quarter of 2020. In terms of regional distribution, top performers were MSCI EM Index and MSCI Asia ex-Japan Index, both increased almost 20%, benefiting mainly from the recovery in manufacturing and trading in Asia.

The government also announced an extension of its furlough scheme till the end of March. The Office for Budget Responsibility predicts that government borrowing will reach £384 billion this year, which equals to 19.4% of GDP, a figure not seen since the Second World War.

At the moment, a typical investment grade bonds issued by a bank with up to 6-year maturity may have a yield to maturity of about 2%, while if the investor chooses to buy and hold infrastructure or utility company’s shares, dividend yields can easily reach 4-5%, and the yields are typically inflation linked.

The growth of e-commerce has not only speeded up the maturity of online retail supply chain, but has also benefited many surrounding sectors, including the packaging industry. The global packaging industry is worth nearly £60 billion, up from £45 billion in 2015, with a compound annual growth rate of 5.6%.

During the first half of the year, the market was expecting a V-shaped or U-shaped recovery, but we tend to believe that a K-shaped recovery is more likely to occur as pointed out by many economists.

Credit markets are facing downgrade or default risk under coronavirus fears. Some investment grade bonds may be downgraded to non-investment grade. In a market where bond yields are generally lower than before, investors tend to lower their credit rating standards when choosing bonds investments in order to pursue the same return level as in previous years.

As of 27 May, a total of 1,287 of S&P’s credit ratings were on downgrade warning, either with ‘negative outlooks’ where a rating change might take two years, or on ‘Credit Watch with negative implications’ where the risk of downgrade is almost imminent.